Stock price fluctuations often seem to alternate between directional bursts of volatility and directionless oscillations. These market phases are often called "trading range markets." When you expect the market to continue in a trading range, you can enhance the stagnant return on your portfolio by selling calls on CBOT DJIA futures options.

Scenario: In August, the value of the DJIA is 7800. Based on your market observations, you don't believe that the DJIA will emerge from its current trading range and increase above 8200 within the next month.

Strategy: Sell calls at a strike price of 8200. The premium of the September 8200 call is 4.60; selling an 8200 call generates an immediate $460.00.

Results: You keep the entire premium if the September futures price stays below 8200 by the September expiration. In return for this immediate gain, however, you give up all price appreciation above 8200. The break-even point is 8,246, where the DJIA is equal to the sum of the strike price and call premium. It is only above this point that the covered call portfolio becomes less profitable than the original portfolio.

Comments: Since the short call is covered by the portfolio, this strategy has no downside risk. The only upside risk is that you give up the price appreciation above the strike price of the call; however, the call premium paid at the outset may compensate for this risk. The optimal strike price of the call depends on the probabilities you have assigned to future increases of the DJIA.